Twitter invokes poison pill to thwart Musk takeover
The maneuver involves offering Twitter shareholders stock at a discounted price.
Twitter’s board of directors has unanimously decided to execute a maneuver referred to as a poison pill in order to prevent Elon Musk from taking over the company. Insiders told the New York Times and Wall Street Journal that the board was planning such a move late Thursday.
The plan “is intended to enable all shareholders to realize the full value of their investment in Twitter,” a press release reads. In doing so, it will “reduce the likelihood that any entity, person or group gains control of Twitter through open market accumulation without paying all shareholders an appropriate control premium or without providing the Board sufficient time to make informed judgments and take actions that are in the best interests of shareholders.”
Under the plan, shareholders will be able to purchase additional shares at the “then-current exercise price.” It would be triggered when a shareholder purchases 15% or more of Twitter’s stock. Elon Musk currently owns just over 9% of Twitter, and would have been capped at 14.9% had he joined the board of directors. The plan expires April 14, 2023.
A company being targeted in a hostile takeover can adopt a poison pill strategy to make itself less attractive or harder to acquire. One method involves making shares available to existing shareholders — except for the hostile party — at a reduced price. This then requires the shareholder attempting a hostile takeover to buy more shares quickly and makes the shares less favorable to the acquiring body. Twitter is executing what is called the “flip-in” method, discounting its own shares, rather than the “flip-over” method, which would involve discounting shares of an acquiring company, because Elon Musk is attempting to purchase Twitter outright as an individual.
Critics say the method is unfriendly to shareholders, who also need to purchase more shares quickly to maintain their investments. However, if Musk takes the company private, he would buy most shareholders out of their investment for $54.20 a share. Musk tweeted Thursday afternoon that he would “endeavor to keep as many shareholders in privatized Twitter as allowed by law.” The exercise price of the rights plan wasn’t announced. Twitter said more details would be forthcoming in an 8-K filing.
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